Mortgage rates drop back

Mortgage rates didn't move much this week; they have remained confined within a narrow range for the last month and a half.

The benchmark 30-year fixed-rate mortgage slipped 3 basis points this week, to 5.12 percent, according to the national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index was 5.41 percent; four weeks ago, it was 5.15 percent.

The benchmark 15-year fixed-rate mortgage was down 6 basis points, to 4.46 percent. The benchmark 5/1 adjustable-rate mortgage dropped 7 basis points, to 4.46 percent.

Since mid-January, the benchmark rate on the 30-year fixed has been moored at a low of 5.11 percent to a high of 5.15 percent. This era of remarkably low rates is a boon to homeowners who are able and willing to refinance. A surge of refinancers applied for loans last week, according to the Mortgage Bankers Association: Mortgage refi volume was up 17 percent.

If the federal government had its druthers, a lot more people would be refinancing.

Weekly national mortgage survey
Results of's March 3, 2010, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:5.12%4.46%4.46%
Change from last week:-0.03-0.06-0.07
Monthly payment:$897.90$1,258.87$832.11
Change from last week:-$3.04-$5.06-$6.86

Thirteen months ago, President Barack Obama announced a foreclosure-prevention initiative that included the Home Affordable Refinance Program, or HARP. The goal was to help homeowners get lower monthly payments, even though home values had dropped and equity had disappeared.

"Right now, Fannie Mae and Freddie Mac -- the institutions that guarantee home loans for millions of middle-class families -- are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home's worth," Obama said when he announced the program. "So families who are underwater -- or close to being underwater -- cannot turn to these lending institutions for help. My plan changes that by removing this restriction on Fannie and Freddie so that they can refinance mortgages they already own or guarantee."

He added that HARP would "make it possible for an estimated 4 (million) to 5 million currently ineligible homeowners ... to refinance at lower rates" by HARP's expiration date of June 10, 2010.

It didn't turn out that way. HARP finally got under way in May. By the end of 2009, halfway into the program's lifespan, a total of 190,180 homeowners got HARP mortgage refis. It's like inviting 200 people to your New Year's party, and only 20 have shown up by 11:30 p.m.

So this week, the agency that oversees Fannie Mae and Freddie Mac extended HARP for a year. Instead of expiring this June 10, it will expire June 30, 2011. The agency's acting director, Ed DeMarco, said in a news release that the deadline was extended "to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program."

That sounds like an acknowledgement that the mortgage industry hasn't fully adopted HARP. A spokeswoman for Federal Housing Finance Agency, or FHFA, which oversees Fannie and Freddie, says in an e-mail: "Many factors can impact HARP volumes, including interest rate environment, current LTV, a mortgage insurer's willingness to transfer the mortgage insurance certificate, and the ability of lenders and other mortgage participants to implement systems and processes to support HARP refinances.  FHFA's announcement to extend HARP will hopefully allow lenders and other mortgage market participants to more fully adopt HARP."

When HARP was announced, the program was for people who owed 80 percent to 105 percent of the home's value. In other words, if someone bought a house, and then the value fell to $100,000, the owner would be eligible for a HARP mortgage refi if the loan balance was $80,000 to $105,000. Last summer, the upper loan limit was increased to 125 percent of appraised value, meaning that someone could refinance for up to $125,000 on a home with an appraised value of $100,000.

FHFA says Fannie and Freddie began buying those higher loan-to-value loans only in October. "It takes time for lenders to implement systems and processes to support any new initiative," FHFA says. "By extending the HARP expiration date, lenders and other market participants, have the opportunity to make the necessary process and system enhancements to support HARP refinances with LTVs up to 125 percent."

No one contemplates raising the loan-to-value limit above 125 percent. FHFA cites "significant challenges and risks to securitizing loans with LTVs greater than 125 percent." And David Stevens, who runs the Federal Housing Administration, tells Bankrate that raising the loan-to-value limit isn't the solution: "No, we have to think of other ways to solve the problem," he says.


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